Adjusted FIFO EBITDA increased 7.8% to $19.7 million from $18.2 million in the prior year first quarter.

Total same-store sales increased 1.1% with a front-end same-store sales decrease of 0.8% and a pharmacy same-store sales increase of 3.5%.

Gross margin on net retail sales expanded to 32.2% compared to 32.0% in the prior year first quarter.

Operating loss was $4.4 million, compared to an operating loss of $4.1 million for the prior year period.

Net loss improved 18.0% to $17.2 million from $21.0 million.

Net cash provided by operating activities improved to $4.3 million compared to net cash used in operating activities of $0.1 million in the prior year period.

John A. Lederer, Chairman and Chief Executive Officer, commented, "We are pleased that we continued to demonstrate growth in our business for the first quarter despite ongoing external challenges and weak consumer demand. Importantly, we showed a solid 7.8% increase in Adjusted FIFO EBITDA as well as expansion in gross margin on our net retail sales. We believe that this continued positive momentum is largely the result of our ongoing efforts to transform our business in order to better serve New Yorkers. In doing so, we are committed to providing our customers with a continuously improving shopping experience that includes a refined merchandise mix and a shopping environment best suited to meet their needs."

First Quarter Results

Net retail store sales, which exclude pharmacy resale activity, increased 2.8% to $426.7 million from $414.9 million in the first quarter of 2008. Total net sales increased 4.1% to $444.5 million from $427.1 million in the first quarter of 2008. Total same-store sales increased by 1.1% during the first quarter of 2009, with a front-end same-store sales decrease of 0.8% and a pharmacy same-store sales increase of 3.5%. During the first quarter, the Company opened one new store and did not close any stores. At the end of the first quarter of 2009, the Company operated 252 stores, compared to 251 stores at December 27, 2008 and 242 stores at the end of the first quarter of 2008.

Total front-end sales grew by 1.7% over the previous year. Front-end same-store sales results were adversely impacted by approximately 0.6% due to the shift of the Easter holiday into the second quarter this year from last year's first quarter. In addition, the front-end same-store sales reflect an increase in cigarette prices commensurate with an increase in New York State cigarette excise taxes. Although such additional sales did not result in any additional profit to the Company, the increase in the sales price on cigarettes positively impacted front-end same-store sales by 0.9%. The total pharmacy net retail sales growth of 4.3% was primarily attributable to a strong same-store sales performance, which increased 3.5% despite a relatively weak flu season. Generic drugs, which typically sell at lower prices but yield higher margins and profitability than brand-named drugs, represented approximately 61.7% of pharmacy prescriptions for the first quarter, compared to 59.1% of pharmacy prescriptions in the first quarter of 2008. The higher proportion of generics adversely impacted pharmacy same-store sales growth by approximately 3.3%.

Gross margin for the first quarter was 30.9%, compared to 31.1% for the first quarter of 2008. Gross margin on net retail sales, which excludes pharmacy resale activity, increased to 32.2% from 32.0% in the prior year, reflecting higher front-end selling margins resulting from an improved mix of higher margin categories inclusive of private label products and reduced inventory shrink losses. Selling, general and administrative expenses as a percentage of net sales decreased slightly to 27.5% from 27.6% in the previous year and reflects initial cost savings from initiatives implemented by the Company to mitigate the impact of the current economic conditions.

The above factors resulted in a 7.8% increase in Adjusted FIFO EBITDA, as defined on the attached schedule of operating data, to $19.7 million for the first quarter of 2009, compared to $18.2 million in the prior year period. As a percentage of net sales, Adjusted FIFO EBITDA increased to 4.4% from 4.3% in the first quarter of 2008.

The first quarter operating loss was $4.4 million, compared to $4.1 million in the prior year period. The increased loss was primarily attributable to an increase in other expenses of $0.5 million during the first quarter of 2009 due primarily to litigation activity associated with a former CEO. A detailed breakdown of other expenses compared to the previous year is provided on Table 6 of this press release.

The first quarter interest expense decreased by $4.0 million compared to the prior year period. The reduction in interest expense was primarily due to lower interest rates on the Company's variable rate borrowings as compared to the prior year period and a reduction in the non-cash interest expense attributable to the Company's Series A preferred stock's mandatory redemption feature, which is considered a derivative financial instrument. Net loss for the first quarter of 2009 was reduced 18.0% to $17.2 million from $21.0 million in the prior year period.

The Company's net cash flows provided by operating activities was $4.3 million compared to net cash used in operating activities of $0.1 million in the first quarter of 2008.

At quarter-end, the Company's total debt, including capital leases but excluding the liability associated with the redeemable preferred stock, was $565.5 million, reflecting an increase of $9.8 million from the balance at the end of fiscal 2008. Availability under the Company's revolving credit facility at quarter-end was approximately $57.7 million.

The Company is also pleased to announce the successful ratification of new collective bargaining agreements with two of its unions. The two unions covered under the new agreements represent approximately 4,800 of our 7,000 employees at March 28, 2009. The new agreements will expire on December 31, 2012 and the terms of the new agreements are aligned with our previously announced outlook for 2009.

Cost Savings Program and Company Outlook

As previously announced, the Company implemented certain measures to mitigate the impact of the current economic conditions during the first quarter of 2009. These measures include a number of strategic cost savings initiatives designed to improve efficiency and eliminate non-value added activities. The Company expects the total cost savings associated with the program to be in the range of $7.0 to $10.0 million for 2009.

Including the anticipated impact of the Company's cost savings program as well as current economic conditions, the Company affirmed its previously provided expectations for fiscal year 2009. The Company continues to anticipate:

Annual same-store sales growth in the range of 1.0% to 2.6%, with front-end same-store sales growth ranging from flat to 2.0% and pharmacy same-store sales growth in the range of 2.0% to 3.5%

A total of 10 to 12 new store openings

Mr. Lederer concluded, "We continue to be enthusiastic about the ongoing transformation of our business and believe that we have the tools, team, and strategy in place to bring about very positive advances over the long-term. We have based our strategy on extensive consumer research, identified several key areas of opportunity, and assembled a highly qualified, best-in-class management team to drive us forward. That said, we remain cautiously optimistic as we continue to monitor the potential impact of the economy on our business and will remain pragmatic and methodical in our approach to elevating Duane Reade's total offering."

Conference Call Information

The Company will hold a conference call on May 5, 2009 at 10:00 a.m. Eastern Time to discuss financial results for the first quarter ended March 28, 2009. A live webcast of the call will be accessible from the Investor Information section of the Duane Reade website (http://www.duanereade.com), and the call will be archived on the website approximately one hour after completion of the call through May 19, 2009. Additionally, a replay of the conference call will be available from approximately 12:00 PM Eastern Time on May 5, 2009 through May 19, 2009. The replay can be accessed by dialing (888) 203-1112 (access code 3259544).

About Duane Reade

Founded in 1960, Duane Reade is the largest drug store chain in the metropolitan New York City area, offering a wide variety of prescription and over-the-counter drugs, health and beauty care items, cosmetics, greeting cards, photo supplies and photofinishing. As of March 28, 2009, the Company operated 252 stores.

Except for historical information contained herein, the statements in this release and the accompanying discussion on the earnings conference call are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, this document may contain statements, estimates or projections that constitute "forward-looking" statements as defined under U.S. federal securities laws. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Company's actual results in future periods to differ materially from forecasted or expected results. Those risks include, among other things, the national economic climate, economic conditions and employment levels in the New York greater metropolitan area, the strength of the economy in general, the competitive environment in the drug store industry in general and in the New York metropolitan area, the ability to open and operate new stores, the continued efforts by payers and government agencies to reduce prescription reimbursement rates and prescription drug benefits, changes in federal and state laws and regulations, including the potential impact of changes in regulations surrounding the importation of pharmaceuticals from foreign countries and changes in laws governing minimum wage requirements, changes in the Company's operating strategy, capital expenditure plans or development plans, the Company's ability to successfully execute its business plan, the Company's ability to attract, hire and retain qualified pharmacy and other personnel, the Company's significant indebtedness, labor disturbances, the continued impact of, or new occurrences of, terrorist attacks in the New York greater metropolitan area and any actions that may be taken in anticipation or response, demographic changes, the Company's ability to limit fraud and inventory shrink, the results of the Company's legal proceedings and recalls of pharmaceutical products due to health concerns or other reasons. Those and other risks are more fully described in Duane Reade's reports filed with the SEC from time to time, including its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. Except to the extent otherwise required by federal securities laws, the Company does not undertake to publicly update or revise any forward-looking statements.

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